Technology-rich mobile phones are paving the way for the sharing of files, Napster-style. But the music industry will fight to protect its revenue. Mike Butcher reports

Thursday June 10, 2004The Guardian

In the movie Dirty Harry, Clint Eastwood's character asks the criminal he has cornered, while brandishing "the most powerful handgun in the world", whether he feels lucky. The music industry can sympathise. The technology industry is brandishing its latest hardware - mobiles able to download, share and distribute music.

The music industry is scared out of its mind. The mass sharing of music files that exploded on the internet could transfer to mobile networks. The advent of high-speed 3G networks and mobile phones with complex operating systems, Bluetooth and massive storage capacity, could create another "perfect storm", hurting profits further.

Storm clouds seem to be gathering. Only last week Nokia released the 7610, a 1 megapixel multimedia camera phone, which can download and play video and music RealMedia, MP3 and, crucially, the iPod-compatible AAC digital music format. Simultaneously in South Korea, one of the most advanced technology markets, mobile network LG Telecom said it would not restrict the playing of music files on mobiles. To limit the use of individually obtained music files would violate consumers' rights since there are no limitations imposed on MP3 players, it says. The move paves the way for a possible legal battle between record producers and telecom service providers.

A debate organised last month by research and analysis consultancy MusicAlly.com discussed this potential "Napsterisation" of mobile. Meeting on the day the new, legal Napster launched with Dixons, the mobile industry went head to head with representatives from the music business.

Ed Kershaw, head of music for Vodafone's global content services, is confident of the future. "Music is predominantly a ringtone business at the moment, but this year is perhaps going to be the most exciting. The Napsterisation of mobile could have happened but ... we learnt a lot from the internet world."

Kershaw said the issue of peer-to-peer sharing of music files using Bluetooth or over the mobile network would be solved by increasing handset security and digital rights management (DRM) systems on the network.

Gerard Grech, head of music for Orange World, largely agreed. "There will be a number of mechanisms to help legitimate music downloading which you have not seen with PCs and the net. There is cooperation on standards [between the mobile networks] allowing people to share music legitimately in a way that didn't happen with PCs."

However, the music companies do not see the explosion of mobile music services as being the walkover the mobile networks imply it will be.

Barney Wragg, vice president of Universal Music's eLabs, said: "It's inevitable the technology will develop to allow people to share music over mobile. We need to act fast to prevent the situation deteriorating."

What he means is that the music industry needs protection in mobile fast and they need it now.

Most operators use the Operator's Mobile Alliance system, which is not true DRM but a voluntary flag that says "do not copy this". Mobile operators are hoping the OMA protection software will delay hackers long enough until its most secure phase can be implemented. This involves encrypting the content sent to a mobile with a signal that will unlock it.

Meanwhile, other players are emerging. Microsoft intends to be a leader in media distribution with Janus, its DRM system, which is designed to make subscription-based content available on mobile devices. Apple, by contrast, is going it alone. It rejected appeals from Real Networks to license FairPlay. But Apple's highly successful iPod cannot easily transfer music to mobile phones.

Ironically, the DRM battle appeared won years ago. In 1999, the record labels were poised to make their catalogues available online. They had developed technology to protect unlimited sharing of their artists' music.

But they didn't bank on 19-year-old Shawn Fanning, coding software in his bedroom that would change the internet and the music industry forever. Here was content without DRM.

Labels frantically launched music portals such as MusicNet and Pressplay, but could do little in the face of the success of Fanning's Napster. Manufacturers felt the market for players with DRM was pointless, so they made MP3 players that could play tracks downloaded via the PC.

But the music industry fought back. The Recording Industry Association of America eventually shut down Napster, and mounted a lawsuit campaign targeted at individuals. Napster's brand was slapped on to a new, legal system, owned by Roxio, makers of one of the first MP3 players.

Around the same time last year, Apple opened its iTunes Music Store, with 500,000 tracks of music priced at 99c a track or $9.99 an album. Its FairPlay DRM and easy integration with Apple computers took off. Apple recently announced sales of 70m tracks. DRM was back on the map.

But the threat remains that another smart 19 year old will beat the DRM regime in the mobile world.

Says Simon Wheeler, head of new media for the independent Beggars Group of labels: "As soon as people can get to the music on the phone and share it unencrypted, who cares what the standards are because once DRM is broken, it's out there."

Others, such as Michael Bornh?usser, president and chief executive of SDC, a DRM specialist company, take a sanguine view. He admits people will find ways around DRM systems. "But there is a lot of space for the 80% of people who want a convenient way to download and legally copy music and share securely with friends."

Reidar Wasenius, senior project manager with Nokia multimedia, agrees. "We can avoid Napsterisation. What we're talking about is technology, but we need to focus on psychology. Hackers will always be there but, to the majority of people, simplicity is the essential issue."

Nokia's Visual Radio service will mean users will be able to purchase songs they hear on their phone's FM radio with one click using a two-way GPRS channel to handsets. Visual Radio displays pictures during the news, weather maps, sports results and so on, synchronised with the radio broadcast. KissFM in London is trialling the system.

Ironically, however, more complex handsets provide fertile ground for new applications. Until the mobile industry makes it easy for consumers to purchase music on their mobiles, there is a window of opportunity for software developers to create programs to allow illegal file sharing.

All it takes, Wragg believes, is for mobile music piracy to gain critical mass. "What you carry today is a tiny PC and the power is growing faster than current PCs."

Already the openings in the system are beginning to appear. The Nokia 7700 media device runs version 7 of the Symbian operating system, and is described as a "mobile media machine". Symbian 7 is highly adaptable with third party applications, making it a potentially fertile platform for P2P applications.

"When everyone has a Symbian 7 phone, there will be a proliferation of applications and suddenly there will be games, copying applications and P2P systems," said Wragg. "Someone will figure out how to broadcast a Bluetooth or Wi-Fi network around a phone to share music files. We need to find ways of dealing with this."

The issue of pricing for mobile networks is also vexing the music industry. 3G mobile phone systems are predominantly priced according to amount of data downloaded. This metered access, as Kershaw puts it, "makes people think more carefully about sharing content". The contention is that when real 3G competition starts, operators won't be able to resist flat-rate pricing.

Furthermore, handset makers could threaten the music industy. Although mobile operators have strict guidelines on how phones should function - Vodafone's list is more than 3,000 pages long - some makers are already tempted to give consumers unfettered functions.

As Leslie Golding, head of music for O2, said: "We've had approaches from handset makers who can offer MP3 downloads from the net."

Wragg puts it more simply: "OEM makers say: 'We see it as our job to commoditise networks and if your content is in the way, it's roadkill'."

Splits within the music industry also threaten to open a P2P Pandora's box. Wheeler said independent music labels, annoyed at the low fees they receive from major labels, could consider ways of using technology to cut them out of the equation. The smaller independent labels view the widespread sharing of digital music as an opportunity.

Indie labels could, in theory, use P2P mobile music sharing as a kind of radio - promotion for their artists with selected free releases. Despite P2P networks such as KaZaA, many indie labels have seen sales rise as the audience finds new music.

"We can work with kids in the bedrooms and get paid," said Wheeler. "DRM networks won't get the revenue. The kid in the bedroom will, and we will. We can't be beholden to the operators who are greedy. We want to be responsible, but if we can still do business and that's what our fans want, then we'll do it."

It's effectively a race against time both for mobile operators and the music industry. The question is, do they feel lucky?